Capital Shares

The Kingston Farm and Garden Co-op Member's Guide to Investing in their Co-op

The purchasing of capital shares is a way for cooperative members to invest money in their co-op. Put another way, the co-op is borrowing money from its members. The co-op gets the money to use for a specified period of time and then gives it back to the member who contributed it (with interest). The interest that the co-op will be paying members is at a higher interest rate than what banks are offering their customers for Certificates of Deposit and it is much less than the percentage rate that the co-op would be paying to a bank if it took out a commercial loan. The monthly amount the co-op will need to set aside to repay shares at maturity ends up being less than the co-op would be paying for rent or a mortgage. The selling of capital shares is a definite benefit to the co-op and members are benefiting by getting a higher rate of return than they might otherwise be getting for their investment. The money stays within the community. Everybody wins.

The co-op is making available 5000 shares of capital stock (pursuant to RCW 23.86.050) with a purchase price of $100 per share. Shares are being issued in four classes with different rates of return and maturity dates as follows:

CLASS
# of Shares
Available
Purchase Value of
Each Share ($)
Maturity
(years)
Interest Rate (percent,
compounded annually)
Value of Each Share
at maturity ($)
A
1500
100
5
1.5
107.73
B
1500
100
10
2.25
124.92
C
1000
100
15
3
155.80
D
1000
100
20
4
219.11


Why Is the Co-op Selling Capital Shares?

Every business must get start-up funds from somewhere - either from the business owners or from a bank- and the cooperative is no exception. The selling of capital shares to members is the mechanism the State has put into place for the owners of the co-op (meaning all of its members) to systematically contribute funds (in excess of their membership fee) to support the capital expenses of the co-op. If the co-op were not selling capital shares it would need to get a loan from a bank at a much higher interest rate.

What if the co-op does not raise enough money from selling capital shares to start the co-op?

The co-op will need to secure a bank loan to meet any capital needs that the selling of capital shares does not meet.

What are the Steps to Investing in the Co-op?



How secure is my investment?

The risk is similar to purchasing stock in a company whose stock is being traded on the stock exchange - if the company fails there is a chance that you will not get back all of your investment. According to state law (and the Articles of Incorporation), should the co-op be dissolved, all debts to outside entities (banks) must be satisfied, and then next all capital share debts are to be satisfied.

Why should I invest in the co-op despite the potential risk involved?

As a member of the co-op you have a voice in how your investment is managed. You have the opportunity to be involved in how the co-op is operated, to serve in a committee and to run for election to the Board of Directors. The co-op is made up of people from your own community, all of whom have made both financial and personal commitments to the success of the co-op.

What will funds be used for?

Funds raised through the selling of capital shares will primarily be used to establish a storefront location from which to operate the co-op. Sacks Feed and Garden is the primary location currently under consideration. Funds raised through the selling of memberships will primarily be used to cover operating expenses.

I have $300 I would like to put toward helping the co-op get started. How should I designate this money?

The first thing you should do is purchase a membership for $100. After that, the co-op would be helped out the most by you making a donation of the remaining $200 (not tax deductible). If you aren't feeling quite as generous, and would like to see your money again someday, the co-op would be more than happy to sell you two capital shares.

Why are there different classes of membership?

Having a range of shares that mature at different periods allows the co-op to spread the repayment over many years, bringing down the amount the co-op needs to set aside each month. In order to encourage members to acquire shares with different maturity dates, a range of interest rates was applied to the different shares.

Why are donations not tax deductible?

The primary business of the cooperative is to sell goods and services. As such, the cooperative is not allowed to register as a federally recognized non-profit (501c3) and therefore any donations made to the cooperative are not tax deductible.

What else is important for me to know about capital shares?